Sizing the Apartment REITs

The NMHC 50 ranks apartment owners by the number of apartments in which they hold an ownership interest. For the majority of companies in the listing, this is the only consistent and generally available measure of size.

For publicly traded REITs, however, another metric is available: total capitalization. The size of REITS, like other publicly traded companies, can be approximated by adding the market valuation of the company's equity and the book value of its debt. Because all of the REITs in the NMHC 50 are apartment specialists, the majority of their assets are apartments owned by the company.

The table to the right lists the publicly traded REITs in the NMHC 50 in order of size by the units measure. Also shown is the rank by total capitalization. There are some notable differences in the rankings. At the top, although AIMCO has an ownership interest in 5% more apartments than does Equity Residential, by the total capitalization measure EQR is nearly twice the size of AIMCO. Other REITs that rank considerably higher by market valuation than by number of units include AvalonBay, Post Properties, Charles E. Smith Residential and BRE Properties.

The differences between the two rankings have several explanations. Perhaps the most important is partial ownership of apartments. In addition to being the sole owner of thousands of apartments, some REITs have partial ownership interest in others, typically through involvement in a partnership as either the general partner or a limited partner. While this ownership interest may be as small as 1%, the apartments enter the count as if they were owned exclusively by the REIT. The valuation measure, by contrast, effectively adjusts for the extent of ownership. Notably, AIMCO has full ownership of only approximately 25% of its apartments and an ownership interest of less than half for approximately 60% of its holdings.

Other reasons for differences between the rankings include: (1) differences in the average value of apartments owned by the company due to geography or apartment quality; (2) differences in the holdings of non-apartment assets, both "hard" assets and the valuation of contracts for "third party management" of apartments owned by others; and (3) differences in the equity market's assessment of the current income and growth prospects for the company.

Managing Condos and Coops The NMHC 50 rankings are restricted to rental apartments. But the expertise required to manage condominium and cooperative housing communities is similar in many respects to that needed for apartment management. In fact, some companies that manage apartments also provide management services to multifamily condos and coops, as well as to homeowner associations in townhouse and single-family developments.

Several of these condo and coop specialists are big enough that, if included in the NMHC 50 management rankings, would appear near the top. The seven largest as of January 1, 2000, based on number of condo, coop and homeowner units managed, as reported to NMHC, are Wentworth Group (94,000 units), Sentry Management (86,031 units), Continental Group Ltd. (75,000 units), Insignia Financial Group (59,852 units), Legum & Norman (47,812 units), Professional Community Management (44,355 units), and Hawaiiana Management Co. (43,556 units).